Robinson Humphrey Intl Research
--SUMMARY-------------------------------------------------------------------
* We believe R-H Internet Security Software companies are currently on
track to meet or exceed our estimates in 2Q00.
* In our opinion, the Internet security software market remains robust and
we expect this to boost the fortunes of industry participants and the
leaders, in particular.
* We believe ISSX is experiencing strength across geographic segments and
revenue categories as it strengthens its market leading position.
* In our opinion, CHKP continues to expand its position as the leader
in firewall and VPN solutions for secure enterprise networking.
* We recommend ISSX and CHKP as core tech holdings for growth investors.
INTERNET SECURITY SOFTWARE - 2000 Q2 UPDATE
We believe that the Internet security software companies in our universe
are currently on track to meet or exceed our estimates for the second
quarter of 2000. In contrast to company-specific weakness reported by a
few vendors within the broader software industry (e.g., CTXS), we believe
that the Internet security software market remains robust and expect this
to boost the fortunes of industry participants and the leaders in
particular.
INTERNET SECURITY SYSTEMS (ISSX - $82.75, Buy 1S)
We believe ISSX continues to enhance its position as the leader in
security management solutions for the Internet and expect the company to
meet or exceed our revenue and EPS estimates of $42.6 million (up 56%
y-o-y) and $0.08 (up 146% y-o-y), respectively. In our opinion, the
potential for upside exists because: (1) ISSX is experiencing strength
across geographic segments and revenue categories, and (2) the company
should benefit from the leverage in its business model as its top line
expands. Additionally, we believe ISSX is likely to announce an
additional partner for its managed security services (MSS) offering within
the next 1-2 months.
CHECKPOINT SOFTWARE (CHKP - $211, Buy 1H)
As the leader in firewall and VPN (Virtual Private Network) solutions,
CHKP, in our opinion, is positioned to post second quarter results that
meet or exceed our revenue and EPS estimates of $83.9 million (up 68%
y-o-y) and $0.41 (up 54% y-o-y), respectively. We believe the potential
for upside to our numbers exists because: (1) the continued rapid
deployment of VPN and other eBusiness initiatives across industries is
driving demand for CHKP solutions, and (2) the company continues to
strengthen its market leading position, in our opinion.
CONCLUSION
With BUY ratings on CHKP and ISSX, we view both stocks as core technology
holdings but believe ISSX is currently more attractive. ISSX trades at
less than one-half the price-to-revenue multiple of CHKP (20.6 vs. 53.1)
with a similar projected annual revenue growth rate in FY2000 (55% vs.
59%). We recommend using the recent market-related price weakness in ISSX
to buy the stock at its current levels (40% off its 52-week high). We also
suggest capitalizing on the volatility of CHKP to build a position in the
stock on weakness. |
